'Challenging economic environment' has Cooper weathering lower than expected earnings

Citing a “challenging economic environment,” the Cooper Tire & Rubber Co. is anticipating only modest earnings for the first quarter of 2008.

“Our current estimate is considerably below expectations, due primarily to continued increases in raw material costs globally, increased charges for product liability claims related primarily to revised estimates on existing claims, and the decline in the volume of unit shipments in North America, particularly in March,” the company reports. “Recent changes in macroeconomic conditions in North America have created a new set of challenges.”

Consumers have reduced the number of miles driven in reaction to the economic slowdown, and subsequently are delaying tire purchases.

The company notes that the dollar’s declining impact and other factors have driven record-high raw material prices, specifically, in natural rubber and oil-derived materials. That coupled with the use of last-in, first-out cost flow assumptions for inventory accounting in North America, have contributed to the increased volatility in expected earnings.

“Despite these headwinds, we are well-positioned and fully committed to our long-term strategy to build a sustainable and cost competitive supply of tires, profitably grow our business and increase our organizational capabilities,” says CEO Roy Armes. “We are fortunate to be in a position to deal with this current economic environment with a strong balance sheet, high liquidity levels and the anticipated sale of our investment in Kumho Tire Co. We have the financial strength to pursue these goals going into the second quarter, the rest of the year and beyond.”

Armes adds that the company will increase its focus on delivering cost improvements this year with initiatives in place.

“These efforts, seasonal volume increases, very good order patterns in specific profitable tire lines, sequential improvements in plant operations and success in implementing price increases, provide support for our belief that results will be appreciably more favorable as the economy improves,” Armes saidsays